Order 20 1 3

- 5

- 5

Served: May 6 , 20 1 3



### UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY WASHINGTON, D.C.

Issued by the Department of Transportation

on the 6 th day of May , 20 1 3

ORDER RE SELECTING CARRIER

Summary By this O rder, the Department is reselecting Pacific Wings L.L.C., d/b/a New Mexico

Airlines (New Mexico Airlines) to provide subsidized E ssential A ir S ervice (EAS) at Carlsbad, New Mexico, for the two

- year period beginning June 1, 201 3 , for an annual subsidy rate of $1 ,3 97,081

. 1

Background By Order 2011

- 4

- 1 9 ( April 2 2 , 20 11) , the Department re selected New Mexico Airlines to provide subsidized EAS at Carlsbad, through May 31, 201 3 . Under that O rder, New Mexico Airlines provides 12 nonstop round trips each week betwee n Carlsbad and Albuquerque (ABQ) , utilizing single

- engine, 9

- passenger Cessna Grand Caravan (C

- 208B) turboprop aircraft for an annual subsidy rate of $ 1, 350,253

.

In anticipation of the end of the current rate term, t he Department issued Order 20 1 2

- 1 2

- 4 (December 12, 2012) , soliciting proposals to provide EAS at Carlsbad, NM , wi th subsidy support if necessary

. In response to that request, we received proposals from three carriers: New Mexico Airlines (the incumbent), Boutique Air , and Sovereign Air, Inc. (Sovereign). The proposals are summarized below. The complete proposals are available at www.regulations.gov by searching for docket: DOT

- OST

- 2002

- 12802.

New Mexico Airlines

New Mexico Airlines submitted a proposal to continue its existing service level at Carlsbad

. Such service consists of 12 weekly nonstop round trips to ABQ , utilizing single

- engine, 9

-

1 Such subsidy is calculated and distributed on a fiscal year basis, subject to the availability of funds. Essential Air Service at

CARLSBAD, NEW MEXICO

Under 49 U.S.C. 41731 et seq

. Docket DOT

- OST

- 2002

- 12802- 2

-

passenger Cessna Grand Caravan (C

- 208B ) aircraft. For this service, New Mexico Airlines would require a n annual subsidy of $1,397,081.

Boutique Air Boutique Air submitted a proposal with three service options. Under all three options, flights would be operated with single

- engine, 9

- passenger Pilatus PC

- 12 aircraft. The first option would provide 24 weekly nonstop round trips to ABQ and 12 weekly nonstop round trips to Dallas /Fort Worth International Airport (DFW) for an annual subsidy of $3,977,670

. The second option would provide 12 weekly nonstop round trips each to ABQ and DFW. This option would require an annual subsidy of $2,965,492. The third service option would consist of 12 weekly nonstop round trips to DFW for an annual subsidy of $1,991,802.

Sovereign Sovereign submitted a proposal with four serv ice options. The first option consists of 14

- weekly one

- stop (Roswell) round trips to ABQ. Service would be provided with twin

engine, 19

- passenger Jetstream 31 aircraft. This option would require an annual subsidy of $1,422,426. The second service opt ion would provide 14 weekly nonstop round trips to ABQ, also on Jetstream 31 aircraft. This option would require an annual subsidy of $1,410,533. Sovereign’s third option would provide 12 weekly nonstop round trips to ABQ

on twin

- engine, 12

- passenger Kin g A ir

- 200 aircraft for an annual subsidy of $1,171,625. Sovereign’s final service option would provide 19 weekly one

- stop round trips to ABQ, also with King A ir

- 200 aircraft for an annual subsidy of $1,551,397.

Community Comments On January 17, 2013, we solicited community comments regarding the carrier

- selection decision at Carlsbad. On February 8, 2013, we received letters from the Carlsbad Air Service Committee and Carlsbad Mayor Dale Janway. Both letters express support for the selection of Boutique Air, specifically its first service option (24 weekly flights to ABQ and 12 weekly flights to DFW) . Mayor Janway’s letter also states that Boutique Air’s third service option ( 12 weekly flights to DFW only) would not work for Carlsbad as the community requires a connection to Albuquerque

. Additionally we received several

comments from citizens of Carlsbad supporting Boutique Air’s bid as well as several in support of renewing New Mexico Airlines’ service.

On February 8, 2013, we sent a request for ad ditional comments to the community. Owing to the excessive levels of capacity and subsidy requirement for the option the community preferred, we asked them to narrow their consideration to Option 3 from Boutique Air (DFW service only) or New Mexico Airlin es’ proposal. On February 20, 2013, we received a letter in response from Mayor Janway, stating that the community would be willing to accept Boutique Air’s Option 2, but could not accept either Option 3 or continued Service

from New Mexico Airlines.

Dec ision In evaluating the proposals we first looked to Sovereign. Sovereign does not currently have the requisite operating authority to perform its proposed service from either the Federal Aviation Administration or the Department. Therefore, we will not consider their proposal further. This leaves us with the proposals of Boutique Air and New Mexico Airlines.- 3

-

When selecting a carrier, 49 U.S.C. § 41733(c)(1) directs us to consider four factors: (1) service reliability; (2) contractual and marketing ar rangements with a larger carrier at the hub; (3) interline arrangements with a larger carrier at the hub; and (4) community views. In addition, The Consolidated Appropriations Act, 2008

, 2 provides that when selecting a carrier to provide EAS, the Departmen t may consider the relative subsidy requirements, thus codifying a factor that we have considered since the inception of the program.

While many of the community comments we received supported Boutique Air’s proposal, specifically because of its additio nal service to DFW, Carlsbad Mayor Janway stated that

service only to DFW would not be suitable for Carlsbad. Boutique Air proposed two other service options that would provide service to both ABQ and DFW. However, of these, even the option with the lowe r subsidy requirement (O ption 2 ) would require a more than doubling of the current annual subsidy and would be more than double New Mexico Airlines’ prospective annual subsidy

. We are cognizant of the community’s belief that recent growth and business dev elopment in Carlsbad would support additional service to
DFW. However, w e cannot justify the additional expense of subsidizing service to a second hub. The core objective of the EAS program is to connect smaller communities to the national air transporta tion system, and New Mexico Airlines’ two round trips a day to ABQ fully meet that objective. Additionally, that capacity level will easily accommodate Carlsbad’s current passenger levels, which average about eight enplaned passengers per day.

If the comm unity believes that the demand exists for additional air service, we encourage

them to reach out to airlines and make their case for additional unsubsidized service.

In his response to our request for additional comments, Mayor Janway cited the example of Lewisburg, WV, where we subsidize EAS flights to two hubs (ATL and IAD) as evidence of why we should select a two

- hub option in this case . While there are some similarities between the two cases, there are important differences that are not captured in t he Mayor’s letter. When we requested proposals for the new EAS contract at Lewisburg (Order 2012

- 2

- 7, February 9, 2012), we received only one response, from Silver Airways (Silver). Silver’s initial proposal was to operate 12 weekly ( 13 in the summer) no nstop round trips per week to ATL. As Silver was the only carrier to submit a proposal, the Department was able to negotiate their service proposal without raising any procedural issues. As a result of those negotiations, Silver agreed to split its propo sed flights between ATL and IAD (rather than

add ing two times more capacity as Boutique Air seeks at Carlsbad) and agreed to a lower subsidy rate (as opposed to the significantly increased subsidy Boutique would require). 3

New Mexico Airlines has been pro viding reliable EAS at Carlsbad since 2007 and has operated with a n average completion factor in excess of 98 %. New Mexico Airlines has established interline ticketing and baggage agreements with numerous partner airlines

worldwide and can be found on all major global distribution systems and internet travel portals. New Mexico Airlines also has electronic interline ticketing with major domestic and international airlines, providing customers the ability to book t ravel between the EAS community, the hub a nd beyond, to other points in the national air tr ansportation system.

2 Public Law 110

- 161.

3 See Order 2012

- 5

- 17, Docket: DOT

- OST

- 2003

- 15553.- 4

-

After careful consideration of this matter, including the comments of local officials and citizens, the Department has decided to reselect New Mexico Airlines to provide EAS at
Carlsbad. New Mexico Airlines will continue to provide 12 weekly nonstop round trips between Carlsbad and ABQ for an annual subsidy rate of $1,397,081.

We shall make th is selection at Carlsbad contingent upon the Department’s receiving properly exe cuted certifications from New Mexico Airlines that they are in compliance with the Department’s regulations regarding drug

- free workplaces and nondiscrimination, as well as the regulations governing lobbying activities.

Carrier Fitness

49 U.S.C. §§ 41737(b) and 41738 require that we find an air carrier fit, willing, and able to provide reliable service before we may subsidize it to provide EAS . New Mexico Airlines is subject to the Department’s continuing fitness requirements, and no information has come to our attention that would cause us to question the carrier ’ s fitness t o provide EAS in th i s market at this time. We have contacted the Federal Aviation Administration, and it has raised no concerns that would negatively affect our fitness finding in this market . We

therefore conclude that the carrier is reliable and remain s fit to conduc t the operations proposed here.

This O rder is issued under authority delegated in 49 CFR Part 1. 25a(b)

.

ACCORDINGLY,

1. We reselect Pacific Wings L.L.C., d/b/ a New Mexico Airlines, to provide essential air service at Carlsbad, New Mexico, and establishes the subsidy rates

, as described in Appendix C, for the period from June 1, 201 3, through May 31, 2015 ;

2 . The Department directs Pacific Wings L.L .C., d/b/a New Mexico Airlines to retain all books, records, and other source and summary documentation to support claims for payment, and to preserve and maintain such documentation in a manner that readily permits its audit and examination by representatives of the Department. Such documentation shall be retained for seven years from the service date of this Order or until the Department indicates that the records may be destroyed, whichever comes first. Copies of flight logs for aircraft sold or disposed of must be retained. The carriers may forfeit its compensation for any claim that is not supported under the terms of this O rder;

3 . We find that Pacific Wings L.L.C., d/b/a New Mexico Airlines, continues to be fit, willing and able to operate as a commuter air carrier and capable of providing reliable

E ssential A ir S ervice at Carlsbad, New Mexico;- 5

-

4

. Th is Docket will remain open until furt her O rder of the Department;

5 . We will serve copies of this Order on the Mayor and Airport Manager of Carlsbad, New Mexico, Pacific Wings L.L .C., d/b/a New Mexico Airlines, Boutique Air, and Sovereign Air, Inc.

By:

SUSAN L. KURLAND Assistant Secretary for

Aviation and International Affairs

(SEAL)

An electronic version of this document is available i n the Federal Docket Management System (FDMS) at http://www.regulations.govAppendix A



# AREA MAP

This map is provided by Sabre ® AirVision TM Profit Essentials and is being used with express permission of the copyright holder,

Sabre Airline Solutions®.Appendix BAppendix C Page 1 of 2 Pacific Wings L.L.C., d/b/a New Mexico Airlines
Provision of Essential Air Service at Carlsbad, New Mexico Summary of Service To Be Provided

Effective Period : June 1, 20 1 3 through May 31, 201 5

. Scheduled Service : 12 nonstop round trips a week to Albuquerque. Aircraft type: Cessna 208B (9

- seats). Intermediate stops and upline service : No service to any intermediate or upline points are contemplated under the terms of the carrier’s proposal; accordingly, no such service may be provided on subsidized flights without prior Department approval. Timing of flights: Flights must be well

- timed and well

- spaced in order to ensure full compensation. Annual compensation: $ 1,3 97,081 This rate assumes an annual completion factor of 9 8.2 percent. A compensation ceiling is to be applied per calendar week such that service above that ceiling in one week cannot make up for service

shortfalls in another week. Subsidy Rate per Flight : $ 1,1 40 1

Weekly Compensation Ceiling: $ 27,3 60 2

1 Annual compensation of $,1,397,081 divided by 1,226 annual departures (24 weekly departures x 52 weeks x 98.2% completion factor).

2 24 flights per week multiplied by $1,1 40 per flight.Appendix C Page 2 of 2

NOTE:

The carrier understands that it may forfeit its compensation for any flights that it does not operate in conformance with the terms and stipulations of the rate order, including the service plans

outlined in the order and any other significant elements of the required service, without prior approval. The carrier understands that an aircraft take

- off and landing at its scheduled destination constitutes a completed flight; absent an explanation supporting subsidy e ligibility for a flight that has not been completed, such as certain weather cancellations, only completed flights are considered eligible for subsidy. In addition, if the carrier does not schedule or operate its flights in full conformance with the order for a significant period, it may jeopardize its entire subsidy claim for the period in question. If the carrier contemplates any such changes beyond the scope of the order during the applicable period of these rates, it must first notify the Office of

Av iation Analysis in writing and receive written approval from the Department to be ensured of full compensation. Should circumstances warrant, the Department may locate and select a replacement carrier to provide service on these routes. The carrier must complete all flights that can be safely operated; flights that overfly points for lack of traffic will not be compensated. In determining whether subsidy payment for a deviating flight should be adjusted or disallowed, the Department will consider the ext ent to which the goals of the program are met and the extent of access to the national air transportation system provided to the community.

If the Department unilaterally, either partially or complete ly , terminates or reduces payments for service or chang es service requirements at a specific location provided for under this order, then, at the end of the period for which the Department does make payments in the stipulated amounts or at the stipulated service levels, the carrier may cease to provide service to that specific location without regard to any requirement for notice of such cessation. Those adjustments in the levels of subsidy and/or service that are mutually agreed to in writing by the Department and carrier do not constitute a total or partial reduction or cessation of payment.

Subsidy contracts are subject to, and incorporate by reference, relevant statutes and Department regulations, as they may be amended from time to time. However, any such statutes, regulations,

or amendments thereto shal l not operate to controvert the foregoing paragraph.

Funds may not be available for performance under this order beyond September 30 , 2013. The Government’s obligation for performance under this order beyond September 30 , 2013, is subject to the availabi lity of funds from which payment for services can be made. No legal liability on the part of the Government for any payment may arise for performance under this order beyond September 30 , 2013, until funds are made available to the Department for performa nce. If funds are not made available for performance beyond September 30 , 2013, the Department will provide notice in writing to the carrier.

All claims for payment must be submitted within 60 days of the last day of se rvice provided

under this order.